CMHC Revises Down Home Price Forecast Over Next Two Years to Adjust for Interest Rate Spike

Canada’s housing agency has cut its national home price forecast for 2022 and 2023, saying that interest rates were rising faster than it anticipated – but the agency is not predicting a sharp correction because it said a housing shortage will support prices. Canada Mortgage and Housing Corp. is revising its forecast because the Bank of Canada will likely continue to hike its benchmark interest rate aggressively to slow runaway inflation, which makes it harder for residents to afford a mortgage.

The federal agency revised down the percentage gain it expects from 2021 to 2022, with the average price now forecast to climb 11% instead of 13.7%. The forecast is for the full year and it includes the first quarter when home prices peaked.

The agency also expects the average home price in Canada to decline as much as 5% from the first quarter of this year to the second quarter of next, hitting a low of $742,970, according to a blog on CMHC’s website. Although home prices have plummeted since the central bank started raising interest rates in March, CMHC chief economist Bob Dugan said he was “leery” of forecasting a steeper price decline when the housing shortage is so severe.

“I have trouble believing in a very big price correction,” Mr. Dugan said. “I don’t want to say that it can’t happen. It is possible for a 10% price correction like some people are saying. But I’m just leery of that because of the supply shortage,” he said.

Private-sector economists predict the country’s average home price could fall as much as 20%. Toronto-Dominion Bank sees a 19% drop from the first quarter of 2022 to the same period in 2023.

Home prices in some of the hottest real estate markets have already declined rapidly from the peak in the first quarter of this year. In the Toronto region, the largest real estate market in the country, the typical home price is down nearly 10% from March to June.

Mr. Dugan said there will be volatility from month to month, and that CMHC was looking at the general trend. Over all, his new forecast now includes the Bank of Canada raising interest rates to 3.5% by next year. The current rate is 2.5%.

Mr. Dugan said CMHC has learned from its mistake in May, 2020, when the agency predicted the average selling price of a home could fall between 9% and 18% in the worst-case scenario. The agency issued the forecast shortly after the government lockdowns had hit sales and prices; yet even after the residential real estate market quickly recovered and home prices accelerated, CMHC stuck to its forecast.

“When we knew that that forecast was wrong, we should have come out sooner,” Mr. Dugan said. “I’m not afraid to admit that. And so you learn from your mistakes, and so that’s what we’re trying to do here.”

CMHC sees the average home price bottoming out in the second quarter of 2023 and then gradually rebounding over the latter half of 2023 and 2024. It predicts the average home price will fully recover at the end of 2024 and surpass this year’s peak by 2025.

Source: Globe and Mail
Source: CMHC

Home Resales Drop in Toronto, Vancouver and Montreal

As mortgage rates and inflation climb, Canada’s major cities are seeing a decline in house purchases. Here are the highlights from Toronto, Vancouver and Montreal. 


According to the Toronto Real Estate Board (TREB) June sales of Toronto homes fell by roughly 41% compared with the same month in 2021 as higher borrowing costs weighed on the market. About 6,474 homes changed hands, down from 11,053 during June 2021. June sales were also down compared to May.

While the board attributed some of the decrease between May and June to seasonal trends, it said the figure and year-over-year sales suggest the current, cooler market conditions will persist.

“Home sales have been impacted by both the affordability challenge presented by mortgage rate hikes and the psychological effect wherein homebuyers who can afford higher borrowing costs have put their decision on hold to see where home prices end up,” Kevin Crigger, the board’s president, said in a release. “Expect current market conditions to remain in place during the slower summer months.”

Realtors and economists attribute the phenomenon to rising interest and mortgage rates as well as inflation, which recently hit 7.7%. The Bank of Canada has also teased that further hikes could be on their way.

Those conditions mean less purchasing power for prospective buyers, but the market is still shifting in their favour because homes are sitting for sale longer and often not garnering the frantic bidding wars they would have months ago.

Davelle Morrison, a Toronto broker with Bosley Real Estate Ltd., has noticed fewer showings and offers being made. However, sellers are taking much longer to adapt to the shifts in the market and are wistful for the conditions seen months ago.

Though homes sold for less on average in June than those that changed hands in May, prices were still up from last year. The average home price in the region stretched to $1,146,254 in June, a roughly 5% increase from June 2021. June’s average was an almost 6% drop from May 2022.

It has Morrison prepping sellers for even further drops in the future. She tells clients if they list their home in two weeks it will likely be priced 10% or 20% lower than today. If they wait a month, it will be even lower than two weeks from now. When she delivers that message, sellers are still keen on taking their time “They just don’t seem to care,” she said.

While month-over-month prices fell, the year-over-year increases in prices were seen across every category of housing and stretched to areas surrounding Toronto. Average prices in the 416 — a nickname for the City of Toronto that excludes its suburbs — reached $1,737,012 for detached homes, $1,027,050 for townhouses and $771,267 for condos. In suburban regions of the GTA, known as the 905, the average price was more than $1,361,862 for a detached home, $906,311 for a townhouse and $692,598 for a condo.

The number of properties listed during June was almost unchanged from last year, the board found. New listings rose by 1% to 16,347 June compared to June 2021. They also dropped 12% from May 2022.

Morrison expects more listings to hit the market in September, when people have wrapped their summer travel plans. She said “It’s going to be great for the buyers, but I don’t think it’s going to be that great for the sellers.”


Greater Vancouver area home sales dropped by about 35% in June compared to June 2021 and 16% from May 2022 as houses remained on the market longer and interest rates rose, the Real Estate Board of Greater Vancouver said. The continued easing translated to 2,444 sales in the region in June, down from 3,762 in June 2021, and 2,918 homes in May 2022.

The board’s chair, Daniel John attributed June’s sales dip — 23.3% below the 10-year June sales average — to mortgage rates which have increased in sync with interest rate hikes and a 39-year high inflation rate.

“Homebuyers have more selection to choose from and more time to make decisions than they did over the past year,” John said, in a statement “Rising interest rates and inflationary concerns are making buyers more cautious in today’s housing market, which is allowing listings to accumulate.”

Such observations signal a shift in the market, which remains one of Canada’s priciest and most in-demand regions. However, recent months have seen some of the heated conditions the last two years of the pandemic delivered start to fade.

Realtors report it is now routine for buyers to sit on the sidelines of the housing market as they wait to see if conditions will ease even further, while sellers are taking time to adjust to a market that is not as frenzied as it once was. 

Such behaviour indicates the market is shifting in favour of buyers, said Tirajeh Mazaheri, a Coldwell Banker Prestige Realty agent in Vancouver. Gone are the days when properties would be sold in days — or sometimes hours — and garner multiple offers.

She’s noticed prospective sellers are taking note of that pattern and the Bank of Canada’s promises of more interest rates to come and deciding to wait it out. “Anyone who can hold onto their property is holding onto it right now, waiting to sell when the market shifts again and goes back up, possibly at the end of this year or beginning of next year,” she said.

That’s resulted in the market seeing 5,256 new listings in June, a roughly 10% drop from 5,849 in June 2021 and a 17.6% decrease from 6,377 in May 2022.

Those that are wading into the market are still fetching more money for their homes than they did last year but less than they would have months ago.

The home price index composite benchmark price sat at more than $1.2 million in June, a 12.4% increase over June 2021, a 2% decrease compared to May 2022, and a 2.2% decrease over the past three months.

“We’re seeing downward pressure on home prices as we enter summer in Metro Vancouver due to declining homebuyer activity, not increased supply,” John said, in a statement.


The Quebec Professional Association of Real Estate Brokers says June’s Montreal home sales dropped 11% since the same time last year, but the market is still favouring sellers. The association says 4,078 homes changed hands in June, down from 4,589 in June 2021. The figures are below 4,333, the monthly sales average since 2017, and signal that the market is continuing to slow.

Single-family homes and condominiums saw 9% and 10% drops in year-over-year sales, while 25% fewer duplexes and triplexes were part of transactions.

The median price of a single-family home reached $570,000 in June, a 12% increase from June 2021, but a $6,000 decrease from May 2022.

New listings totalled 6,573, up 23% from June 2021, when they amounted to 5,325.

“The next few months will finally usher in a downward trend in overbidding and a winding down of the continuing rise in prices compared to 2021,” said Charles Brant, director of the association’s market analysis department, in a release. “Overall, prices have been stabilizing since last May, indicating that the Montreal market has reached its peak, especially in a context where it is becoming increasingly difficult for households to qualify for a mortgage loan.”

Source: Globe and Mail
Source: The Star
Source: The Star
Source: The Star

Building Permits, May 2022

The total value of building permits in Canada rose 2.3% in May to $12.1 billion. The non-residential sector increased 7.0% to $4.3 billion, while the residential sector edged down 0.1% to $7.8 billion. On a constant dollar basis (2012=100), the total value of building permits increased 1.8% to $7.7 billion.

Multi and single residential construction diverges

Residential permits edged down 0.1% to $7.8 billion in May. Increases in Ontario and British Columbia were offset by losses in seven other provinces.

Construction intentions in the multi-family component decreased 5.9% in May, with Quebec returning to more normal levels. Conversely, British Columbia saw a 10.1% increase in part due to a $112 million permit for a condo building in Surrey.

Single-family homes have continued their comeback since the COVID-19 pandemic downturn and longer-term secular decline, increasing 7.0% in total value nationally in May.

Overall, the number of new units created decreased 3.4% compared with April. The decline in the multi-family component (-6.4%) was partially offset by the increase in the single-family home component (+5.4%).

British Columbia pushes up non-residential sector

The total value of non-residential sector permits increased 7.0% to $4.3 billion in May. Gains in the commercial and institutional sectors outweighed losses in the industrial component, which declined 6.1%.

Commercial permit values increased sharply by 15.6% in May, driven by British Columbia with an overall increase of 73.8% for the month.

Construction intentions in the institutional component rose 4.3% in May. Gains were led by British Columbia (+54.9%), reflecting an $82 million permit for a hospital in Fort St. James. New Brunswick also saw notable gains due to permits for a police station and a school in Moncton. Conversely, gains were largely countered by decreases in Quebec (-20.2%) and Ontario (-8.1%).

Source: Statistics Canada

‘Forever Renters:’ Nine Million Canadians Have Given Up on Homeownership

Sellers can expect fewer first-time homebuyers as over nine million Canadians doubt they will ever become homeowners. According to a new report by Finder, a website for comparison shopping, some 29% of adults aged 18 and older have either given up on homeownership or resigned themselves to being “forever renters.”

Finder’s “Generation Rent” survey found that the number of people who are uninterested in owning a home has risen significantly over the past few years. In fact, almost two million more Canadians are now reporting no interest in owning a home than were before the COVID-19 pandemic. More than five million adults (16%) said they were no longer interested in becoming homeowners this year in comparison to only one in 10 in 2019. That’s a 60% increase in just three years.

“Buying a home is a significant decision that requires a large emotional and financial commitment,” Romana King, senior finance editor with Finder, said in a press release. “For many, the erosion of housing affordability combined with rising mortgage costs, means the barriers to homeownership now appear almost insurmountable.”

The number of Canadians expecting to transition from renting to buying has also plunged in the past two years. Only 10% of adults currently anticipate buying their first property in the next five years, compared with 17% in 2020 —  a 70% decrease.

Another four million Canadians (13%) expect to rent for the rest of their lives. “Getting on the property ladder can feel out of reach for many potential first-time home buyers,” King said.

The survey results showed that attitudes toward homeownership vary among different age groups, with the youngest generation being the most hopeful. 45% of those aged 18 to 24 said they believed they will own a home within the next 10 years. In contrast, those between the ages of 35 and 44 were the least hopeful, with 18% convinced that they will be renting forever.

“While there are significant obstacles to overcome — such as a large down payment and qualifying for loans at higher mortgage rates — it is still possible to fulfill the homeownership dream. The work to make this happen starts long before you open up the ‘for sale’ apps,” King said.

King added that Canada needs to assist first-time homebuyers because they are crucial to the country’s real-estate market. The country’s relatively high homeownership rate has little to do with first-time buyers, as Canada ranks among the bottom third of peer countries, according to data from the Organisation for Economic Co-operation and Development.

“It’s important to help first-time home buyers, as they are the engine of the housing market,” King said. “Whether it’s educating buyers on the sales process, helping to define loan terms, implementing rebates and tax-free saving incentives or getting buyers the best mortgage rates – every little bit helps.”

However, the report points out that homeownership is not the only way to grow your net worth. “Generation Rent” can accumulate wealth by being intentional about their savings, learning to invest, and using their geographical flexibility to their advantage.

Source: Financial Post

Why This Housing Slump Won’t be as Bad as 2008

A chill is falling over housing markets around the world as central banks raise interest rates to battle inflation — rousing uncomfortable memories of the most notorious housing crash this century — 2008. But forecasters shouldn’t fall into the trap of believing this downturn will be like the last, argues Neil Shearing, chief economist of Capital Economics.

The alarming run-up in prices, particularly in Canada, Australia and New Zealand seen during the pandemic looks very similar to the housing bubble in the mid-2000s, but the drivers are different, he said. Back then the bubble was created by a rapid expansion in mortgage debt encouraged by “lax regulation and loose lending standards” — especially in the United States. “When the bubble burst, homeowners found themselves in negative equity and forced selling created a self-reinforcing downward spiral,” he wrote.

This time the housing boom was driven by extremely low interest rates, brought on by the COVID-19 crisis. Granted, as the Bank of Canada and other central banks raise interest rates they will be removing a key prop to the housing market.

Shearing said since the start of this year average rates on new mortgages have risen from 2.7% to 5.1% in Canada and from 2.9% to 5.9% in the U.S. “There are growing signs that this rise in borrowing costs – and the anticipation of further increases to come – is already fuelling sharp downturns in housing markets across advanced economies,” he said.

Capital describes four stages to a housing downturn. First, housing market sentiment weakens, then buyer traffic declines, third, housing market activity such as mortgage approvals, sales and starts drop, and finally home prices fall.

It reckons Canada, the U.S., Australia, New Zealand, and Sweden are now in the third stage of the downturn  — and the descent is happening much more quickly than it did in the 2000s. The economists expect home prices to fall by 20% in Canada and New Zealand, whose markets are particularly overvalued, with smaller declines in the U.S. and other markets.

Nonetheless, banks and households are in much better shape to weather this downturn than they were in 2008, he said. “A crisis on the scale of 2008 is unlikely. But a housing downturn will nonetheless cause pain for developers and the construction sector, and it’s possible that this could spill over into problems in the non-bank financial sector. Downturns have a way of uncovering vulnerabilities in areas that are difficult to anticipate,” he said.

Capital thinks the “shift from boom to bust in housing” will shave between 0.5% and 2% off GDP in the U.S., UK, Canada, Australia and New Zealand over the next couple of years, with Canada, Australia and New Zealand at the high end of that spectrum.

A declining housing market is unlikely to stop the U.S. Federal Reserve or the Bank of England from raising rates over the next year. “But in Canada, New Zealand, and Sweden, where vulnerabilities are greater, they could mean that interest rates are not raised by as far as the markets currently anticipate,” said Shearing.

Source: Financial Post